Loanfactz Definitions

Escrow Account

An account held by the lender (or servicer) to which a homeowner pays money for property taxes, homeowners insurance, mortgage insurance, etc. The homeowner pays a portion of the yearly property taxes, homeowners insurance, etc., with each monthly payment, then the lender pays the tax bill and insurance from the accumulated funds. Also called trust account or impound account. If you do not have an escrow account, you are responsible for paying your taxes and insurance out of your own budget accordingly.

The Real Estate Settlement Procedures Act (RESPA), enforced by the Department of Housing and Urban Development, is the major law covering escrow accounts. If your mortgage servicer administers an escrow account for you, the servicer is generally required to make escrow payments for taxes, insurance, and any other charges in a timely manner. Within 45 days of establishing the account, the servicer must give you a statement that clearly itemizes the estimated taxes, insurance premiums, and other anticipated charges to be paid over the next 12 months, and the expected dates and totals of those payments.

Under the Real Estate Settlement Procedures Act (RESPA), the mortgage servicer also is required to give you a free annual statement that details the activity of your escrow account. This statement shows your account balance and reflects payments for your property taxes, homeowners insurance, and other charges.

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